The stock of Panasonic (OTCPK:PCRFY, 30-year Financials) is believed to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $12.94 per share and the market cap of $30.2 billion, Panasonic stock shows every sign of being significantly overvalued. GF Value for Panasonic is shown in the chart below.
Because Panasonic is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 0.5% over the past five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Panasonic has a cash-to-debt ratio of 0.92, which is in the middle range of the companies in Hardware industry. The overall financial strength of Panasonic is 5 out of 10, which indicates that the financial strength of Panasonic is fair. This is the debt and cash of Panasonic over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Panasonic has been profitable 8 years over the past 10 years. During the past 12 months, the company had revenues of $62.3 billion and earnings of $0.724 a share. Its operating margin of 4.48% in the middle range of the companies in Hardware industry. Overall, GuruFocus ranks Panasonic's profitability as fair. This is the revenue and net income of Panasonic over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Panasonic is 0.5%, which ranks in the middle range of the companies in Hardware industry. The 3-year average EBITDA growth rate is 6.9%, which ranks in the middle range of the companies in Hardware industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Panasonic's ROIC was 4.47, while its WACC came in at 5.80. The historical ROIC vs WACC comparison of Panasonic is shown below:
To conclude, The stock of Panasonic (OTCPK:PCRFY, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Hardware industry. To learn more about Panasonic stock, you can check out its 30-year Financials here.
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